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Non-Appearing Holders Can Settle Appraisal Demands

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By Michael Greene

July 21 — “Non-appearing,” dissenting stockholders can individually settle their appraisal demands on terms that may not be available to other dissenters, according to a July 21 Delaware Chancery Court ruling.

Chancellor Andre G. Bouchard held that former shareholders of PlasmaNet Inc. who opposed the company's merger with Free Lotto Inc., but neither filed a petition nor became a named party to the appraisal action, could agree to settle their claims on terms that other dissenters may not be able to accept.

“Under Delaware law, there is no requirement that all dissenting stockholders must settle on the same terms as non-appearing, dissenting stockholders. In this case, approval of the proposed settlement allows the settling dissenters to decide for themselves how to resolve their claims without depriving the non-settling dissenters of their right to a statutory appraisal remedy,” he wrote.

Accordingly, Bouchard granted the surviving corporation's motion to dismiss the non-appearing dissenters from the appraisal action.

Conditional Settlement OK

In the underlying action, a petitioner sought an appraisal of his 1,700 PlasmaNet shares.

Subsequently, non-appearing dissenting stockholders agreed to withdraw their appraisal demands in exchange for shares of the surviving corporation. However, the exchange was conditioned upon the dissenters attesting to their status as “accredited investors” under federal securities law. The petitioner opposed a motion to dismiss the proceeding solely as to the non-appearing dissenters, arguing that the surviving company cannot condition its settlement on the AI qualification.

However, Bouchard opined that there was nothing unjust about allowing the surviving corporation to settle the appraisal demands of individual non-appearing dissenters.

Specifically, he found that the settlement approval did not effect the ability of other shareholders to litigate an appraisal proceeding and that there were no evidence suggesting the settlement terms were coercive to other dissenters.

Accepted Risk

Bouchard also rejected an argument that the proposed settlement should be rejected because it would undercut the economics of the appraisal proceeding.

Specifically, he found that there was nothing unjust in reducing the number of shares in play and aggregate recovery in the appraisal action because the petitioner and his counsel voluntarily accepted this risk.

To contact the reporter on this story: Michael Greene in Washington at mgreene@bna.com

To contact the editor responsible for this story: Ryan Tuck at rtuck@bna.com

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